RightMove is the UK’s dominant property search portal. On one side, consumers looking to let (rent) and buy homes search the RightMove platform. On the other side, agents can advertise their brands and listings. As the UK’s leading property search portal, RightMove built a very profitable business model. Let’s look deeper into what drives that profitability.
How does RightMove make money?
RightMove is the dominant property search portal in the UK. Their marketplace business model leverages their middleman position between consumers looking to let or own properties across the UK, with the agents who represent landlords and sellers.
RightMove leverages its market dominance to gain pricing power (a touchy subject that is explored more below). They charge ~£1,000 + VAT (value-added tax) to single-branch estate agencies per month, but those fees can add up to more than £10,000 for agencies with multiple branches. Their ARPA (Average Revenue Per Advertiser) is £1,088 per month.
By the end of 2019, Rightmove had about 20,000 ‘members’ on their portal; however, there are some large commercial groups and property developers who pay for additional data services and advertising tools. Agents makeup about 80% of their user base, and New Homes makeup about 20%.
Revenue from Agency makes up about 72% of their revenue, while another 20% comes from New Homes, while the rest comes from Other. Their main strength lies in their operating margin, which was 75.9% in 2019, meaning for every £1 earned in revenue, about £0.75 counts towards EBITDA. The pricing power that comes from being the dominant market platform has helped Rightmove create a robust and massively profitable business model.
Community-Centric or Commercial Partner Strategy?
Many marketplace business models require some kind of ‘community’ on at least one side of the platform. In the case of RightMove, that would be the Agents. Consumers simply use RightMove to search and locate a property and are off the platform until their next property search, potentially several years down the line. Agents, on the other hand, use RightMove continuously for lead generation and other advertising services, and as such establish a relationship with the brand.
But RightMove is not a community-centric company, they are a publicly-traded entity with a goal to maximize return for their shareholders. They focus more on commercial partnerships that add value to both sides of the platform, but always in a way that increases their pricing power over agents.
This year, amid the #COVID19 pandemic, that tension came to a head with the Say ‘No to RightMove’ campaign. Pressure from this group, combined with the decreased property movement in UK real estate led them to reduce fees by 75% for 4 months. What happens next (come July when the discount window closes) is the big question.
UK Agents have banded together in a community and put pressure on RightMove to permanently reduce their fees.
Of the 3,000+ offices agents in our database who are still on Rightmove, 90% are strongly considering leaving, and 9% are planning on leaving at the end of their contracts.Say No To RightMove
RightMove is much more expensive than competing sites Zoopla and OnTheMarket. As you would expect, these platforms are trying to use this crisis to pull agents on to their platform and gain market share.
Zoopla –taken over by American private equity firm Silver Lake partners for $2.2bn (£1.87bn) in 2018 – has declared that its portal will be free of charge for agents with fewer than 30 branches (which comprise 80 per cent of its client base) for five months, and nine months if the agent leaves Rightmove.Investor’s Chronicle
But RightMove is still the dominant platform. Consumers go to them first and foremost in the UK for their real-estate needs. As they are the dominant, most profitable platform of the bunch, they have been able to make strategic acquisitions such as the Van Mildert acquisition in 2019 to add tenant referencing to their service mix.
They also have a mortgage partnership with Nationwide Building Society to help would-be buyers find a mortgage when buying. In sum, if Rightmove remains top-of-mind among consumers, the company’s strategy continues towards investing in innovation in order to maintain their margins.
At this point, it’s game theory as to whether the commercial partnership strategy will work, or whether the community of agents will force their hand. Because if they lose a significant chunk of their agent members, the cycle could work in reverse and they may lose some of their pricing power as well, as other platforms cut into their mindshare with consumers.
At this point though, Rightmove’s strength is built from years of being profitable and they have a strong enough cash position to ride through whatever strategy they decide on.
Fundraising and Valuation
RightMove (Ticker: RMV) is a publicly-traded company listed on the UK’s FTSE stock exchange. Their market cap is ~£5 Billion at this point, and they have enough cash on the balance sheet (combined with no debt) where they can survive for a significant amount of time without needing to raise additional capital.
Given the turmoil in the real-estate market, there may even be new opportunities that emerge for RightMove. Many digital platforms have seen a spike in traffic/activity amid the pandemic. With the rental/sales market effectively coming to a halt for the last 3 months, we may see a pseudo-boom over the summer months and a repositioning of all major property-search platforms in Q3/Q4.
RightMove Business Model Canvas
A business model is defined as:
Alex Osterwalder et al invented the Business Model Canvas to help individuals and organizations conceptualize how to analyze, create, and develop business models.
RightMove Value Proposition
Dominant property-search portal in the UK for buying or letting (renting) homes:
- Consumers search through mobile or web app for best properties
- Agents pay a monthly fee to be able to advertise on the platform
- Value-added services to developers, large agencies
Top 3 – Learn More
Business Model Canvas – Zillow
Business Model Innovation – Homeward